Big Interview: Changing regulatory landscape leaves questions to be answered

Big Interview: Changing regulatory landscape leaves questions to be answered

Richard Jackson stepped down as CAA head of consumer protection at the end of January. He spoke to Ian Taylor about his years as an industry regulator

When Richard Jackson took over as CAA consumer protection group director in October 2004, the immediate tasks seemed clear.

Money the industry might have borrowed to invest was tied up in bonds providing financial protection for package holidays under the Atol scheme.

The Air Travel Trust (ATT) was in deficit to the tune of £10 million and MyTravel, a top-two group now merged with Thomas Cook, had recently emerged from a financial crisis which almost sank it.

Jackson says of MyTravel: “We learned a lot of lessons, not least that we needed a much better forward view on companies. We built a risk-management department, which is about one‑third of the department now.”

The new director also sought to persuade the government to impose a £1 financial-protection levy on all flights, something long demanded by the sector. He says: “An all-flights levy had been a proposal of my predecessor, but it needed to be substantiated and it needed a well-argued financial case. We did a lot of work with help from one of the big-four accountancy firms.”

The government rejected the idea. The CAA fell back on a £1 levy on Atol-protected holidays, which became the Atol Protection Contribution (APC), introduced in April 2008.

Jackson says: “How the ATT was funded was not a big issue at the time.” However, bonding was a big issue, especially for the major companies. “We had £2 billion-plus in bonds,” says Jackson. “The industry’s liquidity [bank lending] was constrained and it seemed sensible to release that liquidity.”

Mergers and failures

So the APC replaced bonds for most companies after legislation in 2006 allowed a levy on Atol‑holders to raise funds.The removal of bonding “helped facilitate” the mergers of Tui with First Choice and Thomas Cook with MyTravel in 2007, says Jackson.

“A big two were stronger than a big four, but the bonding would have been considerably more [costly] for those two. It certainly helped them weather the [financial] storm [of 2008-09].”

However, hardly had a £1 APC been put in place than the Atol scheme faced its biggest 
challenge in a generation. On September 12, 2008, XL Leisure Group went into administration with 85,000 holidaymakers overseas and 200,000 bookings.

Fortunately, the CAA had required the company to retain a bond, but it was nowhere near enough. The collapse required the biggest repatriation and refund-paying exercise in the sector’s history. “The industry rallied round,” says Jackson. “We had professionals on the ground to keep people happy. The industry really did pull together.”

But a £1 APC was no longer tenable. Jackson says: “There was always a 5% chance it wouldn’t be enough. If XL had happened a year later there would have been more [money] in the fund.”

The CAA consulted on an increase. “The industry was talking about £5, which was helpful. We had representations that £5 was too much, that £3 was too much – £2.50 seemed defensible and not hugely disrupting to price points.” So the APC became £2.50 in October 2009, where it remains.

Yet before the fund could be replenished, in July 2010 Goldtrail Travel went into liquidation.

The failure remains the subject of legal action after liquidator PwC brought proceedings against several defendants for “dishonest assistance” to the owner. Jackson says: “We had our suspicions. The ATT took a big hit.”

By then the CAA was “already well down the road” to introducing a Flight-Plus Atol for agents selling dynamic packages, says Jackson.

“It was the answer to the growth of the internet, the low-cost carriers and dynamic packaging. If it’s still a holiday, it should be protected. [At the time] even if a consumer bought a flight and accommodation from the same company, it didn’t mean their holiday was Atol-protected.”

Flight-Plus came into effect in April 2012, with the Atol Certificate following soon after. “The Atol Certificate gave us something to hang education campaigns on,” he says. “It’s getting steadily more recognition.”

Changes continued thick and fast. In 2014, the CAA unveiled plans to scrap the Small Business Atol (SBA) and make its financial assessments “more risk-based”. The SBA survived but other changes went ahead. Jackson says: “SBAs didn’t have any sort of financial check on them. An SBA could be technically insolvent but still trading. We were happy to say we wouldn’t get rid of them so long as there was a financial test.”

He adds: “The risk-based approach started in 2005-06 and evolved as we got better at it and the industry adapted.”

The new PTD

The new Package Travel Directive (PTD), adopted in November, requires industry compliance with new regulations by 2018. Yet the industry won’t see government proposals on implementation until the spring. Jackson says: “I would have liked to be further down the road. I’m handing over a blanker sheet of paper than I’d hoped.

“There is an obligation to have the legislation in place by January 2018. Eighteen months is probably enough.” But he adds: “Given the way Whitehall works, you’re not looking at much change other than what is in the PTD by 2018.”

Under the new regime, companies will be regulated in the country they are ‘established’ rather than where they sell. Jackson says: “How the place of establishment works is the big unknown. Do people move out of the UK to somewhere cheaper?

"If firms come to the UK, what liabilities are there to that? Could the regulator be allowed differential pricing for those outside the UK? What will constitute a place of establishment for non-EU companies? A lot of questions need answering.”

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